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Entity Formation

ROBS requires a C-Corporation. This page covers the key decisions in forming your entity.

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Why a C-Corporation?

ROBS requires a C-Corp because the 401(k) plan must purchase qualifying employer securities — stock — which only C-Corporations issue in the way required under IRC 401(a). LLCs, S-Corps, and sole proprietorships cannot be used.
If you haven’t formed your entity yet, that’s fine. Talcott Forge handles entity formation guidance as part of the ROBS process. Don’t form your entity before starting the ROBS process — the plan and entity need to be set up in the correct sequence.

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Choosing a Jurisdiction

The two most common incorporation states for ROBS companies are Delaware and Nevada. Your home state is also an option.
Best for: Most ROBS companies, especially if you anticipate future venture capital or investors.Advantages:
  • Most developed corporate law in the U.S. (Court of Chancery)
  • Standard for venture-backed companies
  • Flexible corporate governance statutes
  • Well-understood by investors, attorneys, and regulators
Considerations:
  • Annual franchise tax ($400 minimum for small companies)
  • If you operate in another state, you’ll also register as a foreign corporation there

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Formation Sequence

The order of operations matters in ROBS. Here’s the correct sequence:
1

Form the C-Corporation

File articles of incorporation with the state. Obtain your Certificate of Incorporation.
2

Obtain an EIN

Apply for an Employer Identification Number from the IRS. Required for the 401(k) plan and business operations.
3

Adopt Corporate Governance

Bylaws, initial board action, officer appointments, and share authorization. Talcott Forge generates these documents.
4

Establish the 401(k) Plan

The C-Corp adopts the 401(k) plan. Plan documents (Adoption Agreement, Trust Agreement) are generated.
5

Roll Over Retirement Funds

Your existing retirement funds transfer to the new 401(k) plan.
6

Purchase Stock

The 401(k) plan purchases C-Corp stock. The corporation now has working capital.

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Stock Structure

For a new ROBS company, stock is typically issued at par value ($1.00/share is standard). This is the initial price per share, and the total shares purchased equals the total capital being deployed. Example: If you’re rolling over 150,000,the401(k)planpurchases150,000sharesat150,000, the 401(k) plan purchases 150,000 shares at 1.00/share. The C-Corp receives $150,000 in working capital. No independent appraisal is needed at formation for a new company — the company’s value equals its initial investment. Appraisals become relevant in Year 2+ for ongoing plan valuations.

Start the Process

Check your ROBS eligibility to get started.